The role of strategic alliances in VC exits: evidence from the biotechnology industry

In this study, we analyze the impact of strategic alliances on VC exits. We explicitly ask whether strategic alliances may serve as a certifying device for new potential investors and whether the role alliances play differs in IPO and M&As. We hypothesize that strategic alliances serve as a certifying device particularly in instances with many uninformed buyers (IPOs) but not when there is a single buyer (M&As). To empirically test this hypothesis, we draw on a sample of 663 US VC-backed biotechnology companies founded between 2004 and 2008. We explicitly control for observed and unobserved heterogeneity in our cohort sample, alleviate concerns relating to self-selection into alliance activity, and assuage methodological concerns with respect to censoring. Our findings suggest that alliances improve the probability of successful exits for IPOs, but not for M&As. Moreover, we find a smaller effect than prior studies do.